The Japanese business community is increasingly pessimistic about the Japan–China relationship. For the past three years the US-based Center for Strategic and International Studies (CSIS) and the Japan-based Nihon Keizai Shimbun (Nikkei) have surveyed Japanese business people about their attitudes to the bilateral relationship with China.

Results from the most recent 2016 survey, released in July, reflect a Japan that has grave fears about the political, security and economic dimensions of the relationship with its most important neighbour.

The Japanese business community is increasingly pessimistic about the Japan–China relationship. For the past three years the US-based Center for Strategic and International Studies (CSIS) and the Japan-based Nihon Keizai Shimbun (Nikkei) have surveyed Japanese business people about their attitudes to the bilateral relationship with China.

Results from the most recent 2016 survey, released in July, reflect a Japan that has grave fears about the political, security and economic dimensions of the relationship with its most important neighbour.

The CSIS–Nikkei survey shows Japanese business groups understand the vital importance of the bilateral economic relationship for Japan. Since 2013, more than two-thirds of Japanese surveyed have consistently acknowledged that the Chinese economy is ‘essential’ to Japan. Yet the surveys also demonstrate that the Japan–China economic relationship is changing.

More than half of Japanese surveyed since 2013 believe China’s importance to Japan’s economy will diminish in the future, particularly as China ceases to be the key production base for Japanese products. In place of China, nearly 90 percent of Japanese business groups are betting on India and Southeast Asia as the most important emerging economic destinations for Japanese investment.

As Waseda University China specialist Rumi Aoyama has shown, the key factor driving Japanese firms out of China is rising labour costs. However, when surveyed around 80 percent of Japanese business groups stated that it was political risk — not macroeconomic or commercial risk — that posed the biggest challenge for doing business in China.

These political risks come in many forms. Since 2013, the perceived risk of improper interference in business by local Chinese government authorities has nearly trebled, from 6 percent to 17 percent, while the perceived risk of a disruption to business caused by China’s foreign relations with the United States or other countries has grown from 16 percent to 23 percent.

The most important political risk perceived by Japanese businesses in China is deterioration in the Japan–China political and security relationship. In 2013, the year after the Japanese government nationalised a number of islands in the Senkaku/Diaoyu island chain, 44 percent of Japanese business groups cited deteriorating Japan–China relations as the greatest political risk facing Japanese firms in China.

In 2016, following an easing of tensions in the East China Sea, that figure had reduced to 30 percent. However, the East China Sea dispute continues to be a key source of tension in the bilateral relationship. Only one third of Japanese advocate ‘shelving’ the East China Sea dispute, while more than half believe the time for shelving the dispute and relying on diplomatic solutions has passed.

Instead, Japanese business groups argue that Japan should take steps to further consolidate its sovereignty claims by building permanent structures on the Senkaku/Diaoyu islands or by stationing Japanese civil servants there. In line with this view, 42 percent believe the Japanese Coast Guard should take stronger steps to counter China in the East China Sea, even if this might increase the risk of conflict. Another 35 percent believe Japan should deploy its Self-Defense Forces (SDF) to ‘resolutely’ safeguard Japanese sovereignty.

These responses suggest the Japanese business community believes that paramilitary or military force is now the only way to deter China in the East China Sea. This response is not surprising given that, over the past three years, more than 90 percent of Japanese business people surveyed have consistently stated that they view China as a threat. Yet beyond this dispute, the China threat has not fundamentally transformed Japan’s traditional post-World War II approach to security in Asia.

While Japanese business groups acknowledge the need to strengthen their country’s Coast Guard and SDF capabilities, a majority of respondents still believe that the US–Japan alliance is the best way to meet the threat from China. Similarly, on other pressing regional security issues like the South China Sea dispute, more than 70 percent of those surveyed argue that Japan should not intervene militarily, but should instead support dialogue through ASEAN-led processes and help Southeast Asian nations to strengthen their own defensive capabilities.

Perhaps the most important findings from the CSIS–Nikkei surveys are the responses that illuminate the nexus between politics and economics. There are some surprising and very mixed findings about how political and security issues affect the economic relationship and vice versa.

The Japanese business community clearly believes that political and security issues do affect Japan’s economic relationship with China. Only 8 percent of Japanese support Japan’s long-standing principle of ‘keeping politics and economics separate’ (seikei bunri). In contrast, 40 percent believe Japan should scale down its business interests in China if the Senkaku/Diaoyu island dispute deteriorates over the long term.

At the same time, 37 percent believe that even in the event of a worsening Senkaku/Diaoyu dispute, the two countries should try to maintain the status quo. Given that two-thirds of Japanese business groups anticipate growing tensions in the East Sea China dispute, this issue is likely to create strong uncertainty into the future.

Although two-thirds of Japanese business groups believe that China will not abide by international norms, there is strong support for Japan to become a member of the Chinese-led Asian Infrastructure Investment Bank (AIIB). Of business groups surveyed, 60 percent believe that Japan should become a formal member of the AIIB at some point in the future. This dichotomy is difficult to explain, but suggests that although they are deeply concerned about China’s future role in the international economic order, Japanese businesses also recognise the importance of new initiatives — like the AIIB — to Japan’s own economic future.

Since World War II, the China–Japan economic relationship has defied the liberal thesis that close economic ties between two countries breed closer political and security relations. Yet political and security tensions between China and Japan have not inhibited the development of a crucially important economic partnership between the two countries.

The Japanese business community recognises that this partnership is now evolving because of the changing nature of the Chinese economy, its growing influence in international political and economic order, and its ability to pose a security threat to Japan. Sustaining the bilateral China–Japan economic relationship in the face of these challenges will require serious attention and leadership on both sides.

Political concerns fuel Japanese business pessimism in China is republished with permission from East Asia Forum

The post Japanese Businesses Express Concern about the Chinese Relationship Direction appeared first on Economy Watch.

Australia has vastly more material resources than its Pacific neighbours. It represents 94.5 percent of the region’s GDP, 98 percent of defence and security spending and contributes 60 percent of total development assistance. Based on a simple comparison of size and material resources, it has been claimed that Australia has ‘a natural right to lead’ in the Pacific and is effectively a ‘great power’ or a ‘regional hegemon’.

Australia has vastly more material resources than its Pacific neighbours. It represents 94.5 percent of the region’s GDP, 98 percent of defence and security spending and contributes 60 percent of total development assistance. Based on a simple comparison of size and material resources, it has been claimed that Australia has ‘a natural right to lead’ in the Pacific and is effectively a ‘great power’ or a ‘regional hegemon’.

However, if this was once true, it is no longer the case. Even at the apparent high point of Australia’s influence, when it successfully secured the support of the Pacific Islands Forum to lead the Regional Assistance Mission to the Solomon Islands in 2003 and then persuaded Papua New Guinea (PNG) and Nauru to agree to smaller interventions in 2004, it has faced limits.

During the Solomon Islands intervention, Australia was constantly criticised by government officials and civil society. In PNG, Australia was forced to withdraw its police after a successful constitutional challenge to the immunity granted to them. In addition, in Nauru, Australia’s governance assistance became increasingly contingent on Nauru’s agreement to host an asylum seeker processing centre.

The limits of Australia’s influence became clearer following the 2006 coup. Australia’s efforts to isolate and adopt sanctions against the military regime had little effect and, in 2012, Australia resumed formal diplomatic relations with the military regime two years before Fiji returned to democracy.

More recently, changes to the broader Asia-Pacific power structure have altered the geopolitical landscape. Most notably, China has increased its aid to the region and Russia recently made a significant donation of military equipment to Fiji. Indeed, the 2013 Defence White Paper acknowledges that ‘attitudes to our role are changing’ in the region, as ‘the growing reach and influence of Asian nations opens up a wider range of external players for our neighbours to partner with’. A number of these external partners were out in force at the dialogue following the recent Pacific Islands Forum leaders’ meeting, including China, India, Indonesia, Japan and South Korea.

Australian Prime Minister Turnbull has acknowledged that the complex regional context ‘demands more engagement at every level, more integrated policy and fresh ideas’. However, while Australia’s announcement of an extra AU$80 million of funding to respond to climate change in the region was welcomed, this does not change the fact that Australia’s approach to climate change is fundamentally different to that of Pacific states.

The regional order is also evolving, with Pacific states increasingly creating, or strengthening, alternative regional and sub-regional institutions and organisations that exclude Australia. For instance, the Pacific Islands Development Forum — established by the Fijian military regime in 2012 — operates in parallel to (and potentially competition with) the Pacific Islands Forum. These alternative organisations also provide avenues for other external powers to acquire influence in the region.

PNG is an increasingly influential player in the region. However, Australia’s relations with PNG are being undermined by its reliance on PNG hosting the Manus Island Regional Processing Centre. Towards the end of 2015, the PNG government cancelled the contracts of all Australian advisers working within the PNG government. And before the recent Pacific Islands Forum Trade Ministers meeting, PNG publicly announced that it would not participate in the Pacific Islands Agreeement on Closer Economic Relations (PACER Plus) on the grounds that it did not offer enough benefits.

Australia’s strategic influence in the Pacific is waning and the characterisation of the state as a ‘regional hegemon’ is a hollow one.

Therefore, Australia faces a dilemma. It has vital strategic interests in the Pacific but comparatively less influence with which to pursue them. Pacific states are largely unwilling to accept Australian leadership and are instead exercising ‘weapons of the weak’ — foot-dragging, expelling officials, staging demonstrations, sabotaging agreements, and brinkmanship.

It is thus time to reassess Australia’s Pacific strategy. Instead of characterising the Pacific as a threatening ‘arc of instability’, Australia’s foreign policy should start from a more positive premise that recognises the region’s potential. This may help Australia work with Pacific states as their principal security partner, rather than an increasingly marginalised hollow hegemon.

Hollow hegemon: Australia’s declining influence in the Pacific is republished with permission from East Asia Forum

The post When did Australia’s Pacific Influence Begin to Slip? appeared first on Economy Watch.

Relations have been good between Singapore and Indonesia, but challenges still lie ahead. The upcoming leaders’ retreat for Singapore’s Prime Minister Lee Hsien Loong and his Indonesian counterpart, President Joko Widodo, will coincide with the golden anniversary (50 years) of formal diplomatic ties between the two nations. Considering how far bilateral relations have come, this is certainly an occasion for celebration.

Relations have been good between Singapore and Indonesia, but challenges still lie ahead. The upcoming leaders’ retreat for Singapore’s Prime Minister Lee Hsien Loong and his Indonesian counterpart, President Joko Widodo, will coincide with the golden anniversary (50 years) of formal diplomatic ties between the two nations. Considering how far bilateral relations have come, this is certainly an occasion for celebration.

In August 1965, Singapore was separated from the Malaysian federation as an act of ideological divorce. It took another 10 months before Indonesia formally recognised Singapore’s independence following the winding down of the campaign of Konfrontasi — Indonesia’s violent opposition to the creation of Malaysia. By September 1967, a Singaporean embassy was officially opened in Jakarta.

The sheer force of nationalism and decolonisation had ensured all three states became entangled in each another’s politics throughout much of the 1960s. Indonesia’s first president, Sukarno, regarded the formation of a Malaysian federation that joined Malaya, Singapore, Sabah and Sarawak as a colonial holding operation. Sukarno perceived the hand of British machination behind the plan.

This was reinforced by the visibility of British military bases in Peninsular Malaysia and Singapore. For Singapore and Malaysia, federation was driven partly by economic logic, partly by their conjoined history as colonies under London’s stewardship for nearly a century, and partly out of the need to forge a common front against communist subversion.

Even in economics, Singapore inherited the functions the British carefully cultivated in the course of their colonisation. After establishing independence from Britain and Malaysia by 1965, Singapore acted as a free port with established mercantile, shipping, and (later) air traffic connections throughout Asia and as far as the Middle East and Europe. Initially, Singapore was seen as a threat to the newly independent Indonesia and its plans to build a sovereign economy with export outlets and facilities for trade with Asia and the rest of the world.

Moreover, Singapore’s politicians and their Malaysian counterparts hedged their rhetoric of Afro-Asian solidarity with the need to legitimise a tangible military security insurance arrangement with the departing British military power. This lasted until such time that their armed forces could sustain their own credibility. This was how Sukarno’s Indonesia framed the need to confront the ‘bogus’ independence of the Malaysian Federation (with Singapore in it) through a low intensity guerrilla war —Jakarta’s policy of Konfrontasi between 1963 and 1966 — which left in its wake a civilian and military death toll in both Singapore and Malaysia.

Today though, both countries have plenty of reasons to toast their economic relationship. Imports from Indonesia to Singapore rank sixth, while exports from Singapore to Indonesia rank fourth after China, Malaysia and Hong Kong. The Singapore–Indonesia commercial aviation route is one of the most heavily travelled within Southeast Asia. In addition, while Jakarta’s politicians accuse Singapore of harbouring Indonesian criminals from time to time, bilateral ties are solid.

On the defence front, Singapore’s armed forces have a strong relationship with their Indonesian counterparts, conducting numerous joint land, sea and air exercises. The degree of friendship was exemplified by the 2014 Elang Indopura air force exercise, which comprised of activities at the Paya Lebar Air Base, Singapore and the Roesmin Nurjadin Air Force Base, Indonesia. Both navies also cooperated closely in the search and rescue effort for the Air Asia plane that crashed in December 2014.

However, the country’s aviation relationship is not without turbulence. From time to time, Indonesian leaders try to assert Jakarta’s sovereign claims — over Singapore’s — to air traffic management zones. Singapore has consistently argued against this, citing International Civil Aviation Organisation standards that management of civilian air traffic has been delegated to it by the world body since the 1940s based on its record and technical capabilities.

There is also the recurring issue of Konfrontasi. For extended periods, leaders on both sides have tried to lay the ghosts of Konfrontasi to rest. For instance, in 1973 when Premier Lee Kuan Yew’s scattered flowers on the graves of two Indonesian marines caught and executed in Singapore for acts of sabotage. However, unplanned furore erupts every now and then, such as over an exhibition in Indonesia that narrated their agents of Konfrontasi as heroes, or when Indonesia subsequently named their newest warships after them.

Environmental damage is also a big issue for the two nations. Forest burning in Indonesia’s Sumatra province creates an annual cloud of noxious smoky air that afflicts the urban centres of Singapore and Malaysia. However, it is hard to obtain any form of apology by the Indonesian government. Indonesia’s acknowledgement of the issue depends very much on the severity of its social and economic impact on Singapore and Malaysia and the level of diplomatic protests.

Despite Singapore’s offers to lend firefighting support and employ concomitant legal sanctions against errant companies and individuals burning the forests, Indonesia continues to exert very little effort in mitigating the haze.

To secure another 50 years of healthy relations, Lee and Widodo will have to confront the prime challenges to Singapore–Indonesia ties, including historical remembrance and hazy non-traditional security threats.

Taking the long view of Singapore–Indonesia relations is republished with permission from East Asia Forum

The post Indonesia and Singapore need to Think Long Term appeared first on Economy Watch.

Africa is becoming a new strategic playground where economic and geopolitical rivalry between Asian powers compels Japan to compete in a contemporary struggle for influence. Japan’s decision to hold the Sixth Tokyo International Conference on African Development (TICAD) on African soil in August 2016 — for the first time in TICAD’s 23-year history — is just one example of its invigorated engagement with the region.

Africa is becoming a new strategic playground where economic and geopolitical rivalry between Asian powers compels Japan to compete in a contemporary struggle for influence. Japan’s decision to hold the Sixth Tokyo International Conference on African Development (TICAD) on African soil in August 2016 — for the first time in TICAD’s 23-year history — is just one example of its invigorated engagement with the region.

China has already identified Kenya as a key hub of its ‘Maritime Silk Road’, forcing Japan’s Prime Minister Shinzo Abe to present his own vision of Africa ripe with economic potential, political dividends and international leverage. At the 2015 Forum on China–Africa Cooperation, Chinese President Xi Jinping boldly committed US$60 billion in development investment to Africa. The pledge has no definitive timeline, but an action plan marks 2020 as a milestone for specific trade, investment and infrastructure goals. In Nairobi, Abe similarly committed US$30 billion over three years, a clear signal that Japan is willing to go head-to-head with China in the African ‘aid game’.

As Japan challenges Chinese influence on the continent, Africa stands to benefit from a windfall of investment. Kenyan President Uhuru Kenyatta’s comments at TICAD VI acknowledged this sentiment when he stated ‘the landscape across the continent is rapidly changing: investments in infrastructure, energy and education are unlocking the value of Africa’s abundant natural resources. And as this mammoth continent moves, it is sending shockwaves throughout the world’.

Addressing 54 African leaders and 52 international representatives at TICAD VI, Abe associated Japan’s national brand with ‘quality’ and ‘empowerment’. By suggesting Japan’s superiority in quality, Abe invoked common African prejudices against Chinese business and construction firms. Abe also appealed to the principle of ‘quality infrastructure investment’ established at the G7 Ise-Shima Summit.

Africa, as the world’s next great growth market, offers Japan long-term economic opportunity. Its development is critical to Japan’s economic revival, presenting entrepreneurs with the promise of rising middle-income consumers across the continent.

However, ‘empowerment’, as Abe presents it, is more than just economic opportunity. Rather, Abe speaks of an African continent that is stable, secure and assertive of its rightful place internationally. He highlights Japan’s role and responsibility to empower Africa. This is a common theme of the Abe government and is aligned with its broader visions for an enlarged Japanese security presence. As Abe points out, ‘in Africa, where possibilities abound, Japan can grow vigorously’.

Beyond business and development partnerships, security and stability took centre stage at the conference. As outlined in the Nairobi Declaration, stability featured as one of the ‘three pillars’ of this meeting. Five initiatives fell under the banner of stability: social stability and peacebuilding, terrorism and violent extremism, global Issues and challenges (including sustainable development, resource security and good governance), maritime security, and United Nations reform.

All of these initiatives are also features of Japan’s broader defence strategy and its desired role in the international community. While human security has been discussed in previous conferences, TICAD VI featured specific security domains and defence initiatives for the first time. For example, under the ‘social security and stability’ initiative, the Nairobi Declaration pledged Japanese support to strengthen the ‘capacity for surveillance and containment, cross-border security, coordinated border management and peacekeeping operations’.

Currently, Japan deploys more than 270 Self-Defence Force (SDF) personnel in South Sudan as part of the United Nations’ Mission in the Republic of South Sudan, with a promise of growing its commitment across the continent. New security laws passed in March 2016 empower SDF personnel in South Sudan to conduct escort and support missions for fellow peacekeepers and NGO workers. The newly revised International Peace Cooperation Act enables SDF troops to extend protection to civilians and local populations and use weapons if necessary.

Beyond the increasing aid and security related interests, Japan also wants to engage Africa through expanding diplomatic networks. To that end, Tokyo plans to establish a diplomatic mission and appoint an ambassador to the African Union headquartered in Ethiopia as well as establish two more embassies in Africa, raising the total to 36.

TICAD VI reinforced Japan’s far-reaching security ambitions and willingness to compete with China in addition to its economic engagement. Along with the perception of ‘quality’, Abe aims to brand Japan as an ‘empowered’ player in the Indo-Pacific region. However, with Japan bringing its ‘empowerment’ strategy somewhat late to the great game of African influence, the question remains as to whether it will be able to take advantage of a growing discontent among African nations with their current Asian patron.

Can Japan make its presence felt in Africa? is republished with permission from East Asia Forum

The post Japan Challenges China’s African Influence appeared first on Economy Watch.

Canadian Prime Minister Justin Trudeau’s eight-day official visit to China in August 2016 was, by most accounts, full of substance and style. The Trudeau government portrayed the visit as part of a refocus to China after a somewhat tumultuous previous relationship.

Canadian Prime Minister Justin Trudeau’s eight-day official visit to China in August 2016 was, by most accounts, full of substance and style. The Trudeau government portrayed the visit as part of a refocus to China after a somewhat tumultuous previous relationship.

Over the past two decades, Canadian governments have grappled with striking an appropriate balance between raising human rights concerns and searching for engagement opportunities with an increasingly important economic power. All the while, the Canadian government has also had to play to its domestic constituents, who hold mixed views of China.

Trudeau’s visit produced a number of concrete results, including opening seven new visa offices in China to boost tourism, securing a number of bilateral economic deals, and continuing to look into a free-trade agreement. Trudeau also signalled intent to join the Asian Infrastructure Investment Bank and maintain Canadian canola exports despite on-going disputes with Beijing.

On the human rights front, Canadian scholars have emphasised the importance of discussing such matters with the Chinese government not in absolutist terms but, rather, contextualised within specific cases to promote the message without provoking a Chinese rebuke.

This advice came after Chinese Foreign Minister Wang Yi’s visit to Canada earlier this year when he berated a reporter for asking a human rights-based question. Trudeau’s government did not press the matter publicly and the almost non-existent response cast doubt on the ability of the new leader to raise such difficult matters with Beijing.

Yet during his visit, Trudeau appeared to have taken a new angle by highlighting Canada’s continued efforts to resolve ongoing and historical human rights matters with Canada’s own indigenous populations to emphasise that such issues are a continual work in progress for all states.

The most novel message of Trudeau’s trip was the suggestion that to assist Beijing in easing anxieties about its growing wealth and power on the international stage, it is in China’s interest to further deepen relations with Canada. Trudeau’s promotion of greater Sino–Canadian relations appears to be a feature of Canada’s independent foreign policy.

Trudeau’s message marks an important shift in tone, but not emphasis, as Canada’s relations with China remain squarely fixated on human rights not overshadowing economic relations. This is a concern to a small but vocal group of Canadian strategic scholars, who criticise Trudeau, like previous governments before him, for failing to raise strategic trepidations about Beijing’s geopolitical aims. Critics also point to Canada’s unwillingness to publicly pressure China into accepting the Permanent Court of Arbitration’s ruling in the South China Sea dispute. Such a silence also leaves questions regarding Canada’s stance on a US–China conflict unanswered.

Canada’s lack of a sustained presence and engagement in East Asian regional security and diplomacy may in part be explained by its priorities in other parts of the world, including historically close cross-Atlantic ties.

One area that may directly impact Canadian security interests is China’s involvement in the Arctic. Some scholars argue that Canada is ill-suited both diplomatically and militarily to deal with a more active, and possibly revisionist, Beijing in search of regional shipping lanes and resources. While much of China’s current Arctic activities are exaggerated, it is a highly visible and sensitive area for many Canadians with a history of sovereignty anxieties in relation to Arctic affairs.

Reconciling the need to find pathways for deeper engagement with China while mitigating risks and building capacities to manage differences is being advocated by a number of prominent Canadian scholars. They argue Canadians have an incomplete assessment and understanding of China and its relationship with Canada. To counter this, they advocate facilitating a more balanced and nuanced public debate and building relations with Beijing — as Australia has done — to include economic, political and strategic matters.

Whether Sino–Canadian relations become a central focus of Trudeau’s foreign policy is uncertain. However, it is apparent that Canada will continue its long-standing tradition of emphasising economic relations alongside raising issues of human rights.

If stronger Sino–Canadian relations do become a foreign policy feature, then history is on Trudeau’s side with his late father and former Prime Minister Pierre Trudeau being one of the first Western leaders to establish relations with China in 1971.

Trudeau’s conviction that strong relations between the two states are in China’s long-term strategic interests may be a small step towards a more holistic relationship. However, for such a synthesis to occur, the Canadian government must heed the advice of experts and begin a more nuanced public campaign about the opportunities, complexities and challenges defining the Sino–Canadian relationship.

Has Trudeau struck a new tone for Sino­–Canadian relations? is republished with permission from East Asia Forum

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On rare occasions, international issues are resolved by a dramatic, decisive development. Much more often, progress is incremental. As United States President Barack Obama has said, an administration hits more singles and doubles than home runs. This has certainly been the nature of the United States’ recent achievements in Asia.

On rare occasions, international issues are resolved by a dramatic, decisive development. Much more often, progress is incremental. As United States President Barack Obama has said, an administration hits more singles and doubles than home runs. This has certainly been the nature of the United States’ recent achievements in Asia.

Unlike the Middle East, which is in seemingly permanent turmoil and crisis, or Europe, whose unity and institutions are threatened, Asia is economically dynamic and generally stable. It is the fastest growing region in the world, the home of many of the companies and much of the technology driving the global economy, and the source of hundreds of billions of dollars in trade and investment.

Obama believed US interests lay in deeper engagement in a part of the world marked by success stories rather than failed states, much as throughout US history its deepest overseas ties have been with a prosperous and dynamic Europe. That has meant neither lazy affirmation of the region’s status quo nor efforts at destabilising transformation. It has required the right balance in dealing with a China whose growing economic, military and political strength is viewed with anxiety by many of the region’s peoples and as a potential strategic rival by the United States.

Obama’s policy towards China has built on the efforts of every presidential administration since Richard Nixon and is grounded in several fundamental principles. These include accepting the increased influence of a China that plays by international rules, building an extensive network of connections with Chinese elites and ordinary people, and providing assurance to the region of the enduring nature of the US’ security commitments. The US also aims to maintain a formal framework of multilateral cooperation encompassing the United States, China and various regional states.

Major achievements have included the establishment of democracy in Myanmar; the US’ decision to join the East Asia Summit and begin efforts to turn it into a significant regional security forum; and the measurable strengthening of security relationships with Japan, South Korea and the ASEAN nations.

With China, Obama has taken steps to improve cooperation and transparency, along with measures to strengthen the security of the United States and its regional allies. The United States and China have concluded military-to-military agreements designed to avoid incidents on the high seas and in international air space. The Obama administration has worked with China to successfully freeze Iran’s nuclear weapons program, place caps on greenhouse gases and halt cyber theft of US companies’ intellectual property.

The United States has also ramped up its naval presence in the South China Sea and, for the first time, comprehensively laid out its principles there — which were largely validated by the 2016 Permanent Court of Arbitration ruling on the China–Philippines dispute. It has overseen a transfer of some of the US’ most advanced naval and air force systems to the Pacific, and it has reaffirmed US defence assurances to Japan covering Japanese-administered islands in the East China Sea challenged by China.

With President Obama having just held his last official meeting with Chinese President Xi Jinping, there are two principal challenges to the generally positive trajectory of US policy towards Asia.

The first is the continuing difficulties in managing and reacting to China’s rise. Will China address territorial conflicts peacefully in the South China Sea, cooperate in rolling back North Korea’s nuclear weapons program, build a normal relationship with Japan and manage its differences with Taiwan? Will China work towards a politically sustainable trade and investment regime and dismantle nationalist and mercantilist policies that encourage other countries to erect retaliatory barriers and decrease global prosperity?

China, not the United States, will answer these questions, but the kind of relationship that the United States has with China will help shape the answers. Neither an American policy of containment nor one of isolationism will produce the desired outcomes to these challenges. None have been resolved during Obama’s time, but he has made ample progress and laid out a realistic and balanced framework that the next president would do well to heed.

The second is the domestic mood in the United States. Casual proposals by Donald Trump to allow Japan and South Korea to acquire nuclear weapons, to abandon US alliances if its partners don’t pay their ‘fair share’, and to impose 45 percent tariffs on China would individually and collectively undo the achievements of President Obama and his predecessors.

The Trans-Pacific Partnership trade agreement (TPP) negotiations, a signature achievement of Obama’s Asia policy, may be a casualty of American domestic politics. If Congress doesn’t approve the TPP this year then approving some form of the TPP will become a priority for the next administration. Otherwise, people in Asia who have long looked to the United States as an essential partner may conclude that its interests do not include them.

Obama’s Asia policy: a solid double is republished with permission from East Asia Forum

The post What will be Left of Obama’s Asian Policy after His Presidency? appeared first on Economy Watch.

There has been much discussion in the US presidential campaign about immigration, especially from Mexico.  Trump has proposed a wall for the 2000-mile border.  Different types of fences are on about a third of the border as it stands today. 

However, as this Great Graphic, from Pew Research shows, Mexican immigrants may have been a problem previously, but for the past decade (2005-2014) more Mexicans have left the US than entered (hat tip to Philip Bump).

There has been much discussion in the US presidential campaign about immigration, especially from Mexico.  Trump has proposed a wall for the 2000-mile border.  Different types of fences are on about a third of the border as it stands today. 

However, as this Great Graphic, from Pew Research shows, Mexican immigrants may have been a problem previously, but for the past decade (2005-2014) more Mexicans have left the US than entered (hat tip to Philip Bump).

In 1995-2000, a little more than two and a quarter million Mexicans migrated to the US.  In the 2005-2014 period, 160k net have returned to Mexico. 

What happened in the second half of the 1990s?  One word:  NAFTA.  The apparent immigration problem may have really been a function of US trade policy.  Recall that under NAFTA, Mexico had to remove much of their supports and subsidies for agricultural products.  This was particularly hard on Mexico’s corn growers.  In turn, it appears that many Mexican’s that came to the US in the second half of the 1990s came from the corn growing region.  

At the same time, it is true that some of the traffic on the US-Mexican border is not from Mexico, but from other countries in Central America.  These include El Salvador, Guatemala, and Honduras.  However, these are small countries and the numbers are small.  In 2014, the last year of complete data, the largest number of migrants are from (gross flow not net) India (147.5k) and China (132k). 

Not be confused with the facts on immigration, a number of market participants continue to see the US presidential election as a factor that is influencing the vagaries of the Mexican peso.  The recent slide in the peso (the US dollar has risen from ~MXN18.26 in the middle of last week to MXN19.20) has coincided with the pullback in oil prices, higher yields, and a little firmer Trump poll numbers.  Nate Silver’s Fivethirtyeight.com indicates that based on current polls, the odds of Clinton becoming the next US President is about 69%.  A month ago, it was around 88%.  The US dollar appears to be finding support around the previous resistance at MXN19.00.

Great Graphic: Net Mexican Migration to the US–Not What You Might Think is republished with permission from Marc to Market

The post Less of a Problem than You May Have Heard appeared first on Economy Watch.

Singapore Prime Minister Lee Hsien Loong paid an official visit to the United States at the invitation of outgoing US President Barack Obama from 31 July to 5 August 2016. Apart from the symbolic significance of the trip — which included the rare honour of a state dinner to commemorate 50 years of their diplomatic ties — the visit capped efforts by both countries to strengthen their strategic partnership during the two terms of the Obama administration.

Singapore Prime Minister Lee Hsien Loong paid an official visit to the United States at the invitation of outgoing US President Barack Obama from 31 July to 5 August 2016. Apart from the symbolic significance of the trip — which included the rare honour of a state dinner to commemorate 50 years of their diplomatic ties — the visit capped efforts by both countries to strengthen their strategic partnership during the two terms of the Obama administration.

Those efforts have been successful so far in boosting cooperation across a range of areas. Still, both sides will also have to navigate challenges to ensure that this trajectory continues in the coming years.

Both the United States and Singapore have long viewed each other as vital partners. For Singapore, the United States’ regional presence provided it with the stability and time to emerge as one of the world’s most advanced economies. Today, the United States is also Singapore’s top foreign direct investor as well as a key provider of defence technology and facilities for military training. For Washington, Singapore has played an outsized role as a regional partner, at times one even bigger than some treaty allies.

In 2012, the relationship was formally upgraded to a strategic partnership, which led to the creation of an annual Strategic Partnership Dialogue (SPD) featuring top diplomats from both sides. Since then, both sides have expanded their relationship across several areas, a trend that continued with Prime Minister Lee’s visit to Washington. On the economic side, the US–Singapore Third Country Training Programme (TCTP) is still hailed by US officials as a paragon of bilateral cooperation.

More recently, economic collaboration has extended into areas like the digital economy and smart cities. Security ties have also been on the uptick. Last year, both sides inked an Enhanced Defence Cooperation Agreement (DCA) that paved the way for greater cooperation in fields like cybersecurity and biodefence. Singapore has also agreed to rotationally host littoral combat ships (LCS) and P-8 Poseidon maritime surveillance aircraft, while Washington is looking to expand training opportunities for the Singapore Armed Forces in the United States.

With these developments, one Singaporean official told me that the defence relationship now ‘looks qualitatively different than it did even just five years ago’. Even deeper collaboration could be in the cards. The United States is seeking to further develop the US–ASEAN Connect — a new initiative that seeks to coordinate US regional economic engagement. Singapore will have a big role to play in it as one of its three designated ASEAN hubs. In addition, if the city-state does end up acquiring the F-35 Joint Strike Fighter, it could deepen its interoperability with not only the United States but also potentially a broader network of US allies and partners including Australia and Japan.

However, even as both sides continue to strengthen their strategic partnership, they will each also have to confront a series of challenges.

For the United States, the challenge is two-fold. The first is addressing domestic constraints that could affect its credibility to deliver on its commitments. On the security side, sequestration still threatens to undermine US military power and presence unless US leaders find a way to address budget cuts.

On the economic side, both parties must confront the domestic populism that has eroded the support for the Trans-Pacific Partnership (TPP) and approve an ambitious trade agreement that will set high standards for the world to follow. As Prime Minister Lee correctly suggested at a press conference in Washington last week, failing to conclude the TPP would be a huge blow to US credibility.

The second is the need for Washington to deftly manage a complex array of regional and global challenges while sustaining the rebalance to the Asia-Pacific.

The Obama administration, to its credit, has repeatedly resisted intervening militarily in crises for fear that it may consume its attention and derail its Asia focus. However, as the United States confronts a more tumultuous world, the pressure for intervention or activism elsewhere is growing. It remains to be seen whether the next president can ensure that the United States has the bandwidth to continue to invest not only in its Asian alliances but strategic partnerships too.

Singapore, too, faces its share of challenges. As it strengthens ties with the United States, it will need to maintain a careful balance to simultaneously develop a closer relationship with China. Some Chinese interlocutors privately refer to the city-state as conspiring with Washington to contain Beijing, a perception only reinforced by the hosting of P-8s and LCS ships. This will be an especially tricky balancing act as Singapore continues in its role as country coordinator for ASEAN–China dialogue relations, particularly given the propensity of major powers to interfere in ASEAN’s deliberations on issues like the South China Sea.

Singapore’s gradual shift to a more competitive political landscape in the coming years could also pose a challenge in its strategic partnership with Washington. Though the ruling People’s Action Party continues to perform well at the polls, politics is becoming more contested, with a greater diversity of actors.

To be sure, none of these challenges are insurmountable. Singapore has proven to be adept, at times seemingly against all odds. The United States, too, has repeatedly proven resilient in spite of doubt about its staying power. Perhaps most importantly, as President Obama said during his toast at the State Dinner, the two countries share a commitment to build something special together as they have done for the past 50 years.

Opportunities and challenges in strengthening US–Singapore ties is republished with permission from East Asia Forum

The post After a Symbolic Visit, what is next for US-Singapore Relations? appeared first on Economy Watch.

Analyses of state responses to the South China Sea arbitral award often frame the issue as a binary choice between a rules-based or power-based approach to international relations. However, states are unlikely to view the matter this way, because international law is not autonomous from politics.

Analyses of state responses to the South China Sea arbitral award often frame the issue as a binary choice between a rules-based or power-based approach to international relations. However, states are unlikely to view the matter this way, because international law is not autonomous from politics.

As observed by one practitioner of both fields, ‘it is impossible to make substantive decisions within the law which would involve no political choice.’ The award’s content is a result of choice by the judges between paths with varying political implications, and these outcomes guide individual states’ support for the ruling.

This is not to suggest that the judges had political motives or that their decisions are bad law. However, if we enlist international law to solve political problems, we must recognise that legal rules are not politically neutral — they distribute scarce resources among sovereign states, whether material endowments or political power.

The chequered international response to the award suggests that states are mainly concerned with its implications for their interests, and not with observing international law for its inherent legitimacy.

This is critical to the award’s impact, as whether China eventually complies will likely turn on Beijing’s assessment of Only the United States, Australia and Japan have expressly stated that the award is binding. Such language was absent from India, South Korea, all ten ASEAN states, the European Union and the office of the UN Secretary General.

Given that all these actors express support for international law to resolve the South China Sea disputes, their caution likely stems at least in part from the Tribunal’s expansive approach to certain issues, which went beyond what most legal experts anticipated.

I have argued that the unequivocal dismissal of ‘historic rights’ has decreased the chance of Beijing trimming its claims to align with the United Nations Convention on the Law of the Sea (UNCLOS). However, this may also explain other states’ reticence to endorse the award’s conclusion, notwithstanding that they only bind the parties to the arbitration. Notably Vietnam, which like China maintains an expansive claim based on its own account of the historical record, has yet to deliver its promised statement on the award’s content.

Reluctance to endorse third-party adjudication on the merits of a unilateral historical account may apply not only to maritime sovereign claims but also terrestrial ones, for example those of India.  It is precisely in such cases that states are likely to reject definitive judgments by an international tribunal.

States are more likely to accept such decisions where the dispute turns on different readings of mutually accepted events, as with the disputes between and Thailand and Cambodia.

The Tribunal also went beyond UNCLOS’ text in its approach to distinguishing features as ‘islands’ or ‘rocks’, looking to evidence of long-term permanent settlement when deciding a feature’s capacity to ‘sustain human habitation or economic life’. This resulted in Taiwan-occupied Itu Aba being declared a rock, when it could just as well have been found an island under the rules of treaty interpretation.

The Tribunal had discretion on this issue, as Itu Aba was not among the features on which the Philippines requested an opinion (although it was mentioned in Manila’s oral arguments). It chose both to rule on Itu Aba’s status and to interpret UNCLOS Article 121 in a way that not only lacks clear support in state practice, but also which caused maximum aggravation to Beijing and Taipei.

As one commentator put it, the Tribunal’s reasoning does not reveal the Platonic form of an ‘island’: it fixes a more or less arbitrary standard, which might have been decided differently by a different panel. In this context, it is understandable why Beijing and Taipei view the Tribunal as having gone out of its way to discredit their claims.

The Tribunal justified its approach as reflecting the intended balance in UNCLOS between sovereign rights generated by small features and those enjoyed by large coastal populations. However, given that it asserted jurisdiction on the basis that sovereign rights were not at issue, this could be criticised as inconsistent reasoning, as anticipated by one legal scholar prior to the award’s release.

These are not academic distinctions when played out on the international stage. They have political ramifications, which may work against dispute resolution. This has been most evident in the response of Taiwan, which before the award’s release was being held up as a model of cooperation for its approach to the Diaoyu– Senkaku dispute.

Last week Taipei flew a minister onto Itu Aba to defy the award, including its reference to the ‘Taiwan Authority of China’, which while legally defensible was politically tone-deaf and guaranteed to provoke a combative response.

Nor is the award likely to help prospects of other states submitting to adjudication their claims to features that, based on the tribunal’s reasoning, likely is declared rocks with minimal entitlements. Japan for instance was quick to state that the award does not set a precedent for what constitutes a ‘rock’, specifically regarding Okinotorishima.

States are always wary of consenting to dispute resolution by international tribunals for fear of expansive jurisdictional assertions and ambitious reasoning; hence, UNCLOS allows exemptions from such processes. The Tribunal’s decision that China could not avail itself of such an exemption was already ambitious. Given the forward-leaning nature of the ruling that followed, other states may conclude that their best option in China’s situation would be to follow Beijing’s example in stonewalling arbitration.

We should hope that the award becomes a path towards dispute resolution in the South China Sea, and not an example of the ‘false promise’ of international institutions.  Apart from the prospect of a disastrous armed conflict, and uncertainty over the food security of hundreds of millions, at stake is the integrity of the UNCLOS dispute resolution regime. However, state reactions to the award raise questions as to whether that regime was really designed to deal with such a political minefield.

South China Sea: the problems of an ambitious award is republished with permission from East Asia Forum

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After over 20 years of sanctions and international pariah status, Myanmar has begun to come in from the cold. It has taken the 2010 elections, a new ‘civilian’ president and the by-elections of early 2012 to convince the international community that the transition to democracy is ‘real’.

After over 20 years of sanctions and international pariah status, Myanmar has begun to come in from the cold. It has taken the 2010 elections, a new ‘civilian’ president and the by-elections of early 2012 to convince the international community that the transition to democracy is ‘real’.

The subsequent flurry of diplomatic activity with Myanmar has resulted in most of the sanctions being suspended. On the surface, this re-engagement with Myanmar appears to have been initiated by the US Obama administration. However, while this is undoubtedly true, it misses the key role that Japan has played.

Japan has always taken its own approach to Myanmar, following a ‘carrot and stick’ method throughout the 1990s and 2000s. The carrot here was the promise of Japanese public and private investment to encourage political and economic reforms.

For Japan, geostrategic competition with China and support for ASEAN, combined with its economic interests, are the primary factors motivating engagement with Myanmar. Underpinning all this is the widely held perception that Japan has invested heavily in Myanmar since its independence and now it’s time to reap the benefits.

Japanese investment in Myanmar dates back to the reparations agreement of 1954 when Japan began supplying half of (then) Burma’s development aid. This continued through to the post-Cold War sanctions period, when Japan continued to provide piecemeal aid on a case-by-case basis.

Importantly, because of the incompatibility between the ‘Burmese Way to Socialism’ and the Japanese foreign economic policy of keizai kyÅryoku [economic cooperation] — through which private actors utilise public funds to subsidise their investments — economic relations became totally dependent on publicly financed Official Development Assistance (ODA). However, due to Burma’s long-term economic decline during the Cold War and the post-Cold War era sanctions, Japan has never received any return on its investment.

As early as 1999, the Japanese government promised loans to Myanmar if progress was made on democratisation. Therefore, in 2012, when Aung San Suu Kyi won a seat in parliament, the Japanese government quickly cancelled a large portion of Myanmar’s debt. A year later, Japan cancelled another large amount of Myanmar’s debt, bringing the total debt cancelation to US$3.8 billion. In 2012, Japan was also instrumental in clearing Myanmar’s arrears to the International Financial Institutions, thereby also enabling reengagement between them and the government of Myanmar.

Japanese business powerhouses such as Nihon Koei, Marubeni, Itochu Corporation, Mitsubishi and Sumitomo have been involved in ODA financing projects in Myanmar since the Cold War. The Thilawa Special Economic Zone (SEZ), which is being jointly developed by Japan and Myanmar, is one example.

The Thilawa SEZ was offered to Japan in 2011 in return for Japanese support and has now become a key destination for Japanese public and private investment. By 2013, Japan was pledging considerable public finance for the Thilawa SEZ, and Prime Minister Shinzo Abe was visiting with groups of Japanese businessmen, explicitly demonstrating Japan’s support.

This public–private partnership goes even deeper. While the usual Japanese corporations have been awarded the contracts for infrastructure connected with the Thilawa SEZ, the Japan International Cooperation Agency — Japan’s public aid agency — is in fact a shareholder in the Thilawa SEZ. Along with Mitsubishi, Marubeni and Sumitomo, the Japanese own 49 percent of the Thilawa SEZ. This is the first ever Japan–Myanmar public–private initiative.

So is Japan reverting to its Cold War keizai kyÅryoku foreign economic policy? Certainly private and public actors have cooperated to a high degree, and have been highly proactive in their attempts to ‘open up’ Myanmar. It may also be that such policy never really disappeared, and is now merely operating in a more amenable environment. Alternatively, perhaps the geopolitical imperative of countering the rise of China is forcing Japan to revert to its Cold War strategies. What is certainly true is that many Japanese stakeholders feel that Japan has a perceived ‘right’ to Myanmar, which stems from its long-term investment.

Regardless of the rationale, Japanese economic activity in Myanmar will surely increase dramatically in the near future. In 2015 alone, Japan agreed to new loans totaling about US$1 billion and, in early 2016, it announced that the new Yangon International Airport — worth US$1.5 billion — would be 49 percent financed by the Japanese. Through such methods, Japan will finally begin to see a return on its investment in Myanmar.

Japan set to reap returns on investment in Myanmar is republished with permission from East Asia Forum

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